Fact Check: Obamacare’s Medicare Cuts

Since the Romney-Ryan campaign is hammering the Obama-Biden ticket on the Affordable Care Act’s $716 billion in cuts to Medicare, it seems useful to put this figure in context and explain exactly what programs within Medicare lose funding under the health care law.

First, the context. The Congressional Budget Office estimates Medicare spending over the next 10 years will be about $7.5 trillion. This means the ACA’s Medicare cuts account for less than 10% of overall Medicare spending. The program is not being gutted. Even with the ACA cuts, the CBO says the cost of Medicare is expected to grow from about $500 billion in 2012 to nearly $900 billion by 2022.

As for the cuts, they come from eliminating a massive subsidy to private insurers and gradually reducing the rate of growth in payments to some providers. These changes, while not catastrophic for Medicare, are important. Under the ACA, the federal government will substantially reduce the amount it spends funding Medicare Advantage, which is privately administered insurance offered to Medicare beneficiaries. About one-quarter of Medicare recipients are enrolled in private Medicare Advantage. In theory, these plans are supposed to manage health care spending better than fee-for-service Medicare. But they don’t actually save the federal government any money. They cost, per patient, 14% more than traditional Medicare. (See Figure 3 of this fact sheet from the Kaiser Family Foundation. And see here for more.) The ACA eliminates this subsidy and pegs Medicare Advantage payments to quality metrics.

The second bunch of money that gets cut from Medicare under Obamacare comes from providers. Hospitals, home health agencies and others will see Medicare payments grow more slowly than they have in the past.

Medicare benefits will not change – in theory. However, providers who get paid less from Medicare in the future may be less inclined to accept Medicare patients, thereby reducing access. The frequently criticized Independent Payment Advisory Board, created by the ACA, could cut provider payments even more to keep the growth in Medicare spending under a benchmark. If Medicare per capita spending grows faster than a rate pegged to inflation and later GDP, IPAB will be empowered to recommend provider payment cuts. If Congress can’t find alternative ways to keep Medicare spending growth under the inflation or GDP benchmark, the IPAB recommendations will automatically go into effect. This too could reduce access. Bonus Medicare Advantage benefits – like free gym memberships – may go away.

In exchange for these kinds of reductions in Medicare spending, funding for the program was bolstered in other ways by the ACA. Preventive care is now covered at 100% for Medicare beneficiaries and a gap in Medicare prescription drug coverage will slowly close under the law. Some Medicare beneficiaries, primarily wealthy Americans, will pay higher Medicare premiums and taxes under the ACA.

The idea, however, that the Affordable Care Act struck a dangerous blow to Medicare that will change the program in fundamental ways is untrue. Under the new law, Medicare will remain a wildly popular, public single-payer health insurance system that provides comprehensive coverage to millions of Americans.